Funds united in a common cause

The appetite of foreign pension funds for Australian infrastructure assets shows no sign of dissipating in 2013 amid the volatile global economy.

The privatisation of Port Botany and Port Kembla by the NSW government is likely to attract fierce bidding from international funds, which could also show interest in the sale of collapsed tollroad operator RiverCity Motorways and the possible break-up of BrisConnections.

Foreign funds have stolen a march on the locals in investing in infrastructure. Not only do they have deeper pockets – with several Canadian funds managing more than $100 billion each – but, typically, they have dedicated infrastructure teams that specialise in analysing the pros and cons of potential investments that could give them an edge.

In a joint venture with Hastings Funds Management, the Ontario Teachers’ Pension Plan paid $2.3 billion for a 50-year lease on the Sydney desalination plant.

Meanwhile, Canadian fund Caisse has made its first Australian investments. Caisse initially teamed up with Plenary Group to invest $139 million in five local public-private partnerships and subsequently invested another $40.5 million in the group’s Victorian cancer centre project.

Foreign funds prefer stakes in established local infrastructure assets because they are regarded as more stable generators of income over the long term than equity investments.

With such offshore funds continuing to grow – the Canadian Pension Plan Investment Board (CCPIB) predicts its fund will be worth more than $300 billion within the next decade – they are also taking equity stakes in infrastructure-orientated companies.

CPPIB is believed to be one of several funds along with the Abu Dhabi Investment Authority that acquired an equity stake in railroad group QR National in October after its largest investor, the Queensland government, reduced its holding.

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Faced with missing out on local investments, Australian pension funds are teaming up to boost their scale and expertise. REST Industry Super has taken the unprecedented step of banding together with Spanish infrastructure developer Cintra to give it the firepower to invest in toll roads, such as the $10 billion WestConnex toll road proposed for Sydney.

By investing jointly with Cintra, a subsidiary of Spanish contractor Ferrovial that manages 25 highways in seven countries, the $23 billion REST fund hopes to avoid getting burned on failed projects such as Brisbane’s Clem Jones Tunnel and Sydney’s Cross-City Tunnel, and increase its allocation to infrastructure investments from about 5 per cent to 10 per cent.

Mark Birrell, chairman of industry group Infrastructure Partnerships Australia, expects more local funds to team up with one another, such as occurred in 2011 with the merger of First State Super and Health Super which created a group with $28 billion worth of assets.

Tony Shepherd
, chairman of the Business Council of Australia and former chairman of Melbourne toll-road group ConnectEast – acquired in 2011 for $2.2 billion by a consortium of foreign funds – has also called on funds to merge.